How to Calculate Texas Franchise Tax
Revenue Threshold
Businesses with annual revenue above $2,470,000 are required to file a franchise tax report. Businesses below this threshold do not need to file a franchise tax report but may still be required to file a Public Information Report or Ownership Information Report.
Calculation Methods
The Texas franchise tax is calculated based on a business’s margin, which can be determined using one of the following methods:
- Total Revenue Multiplied by 70%
- This method involves multiplying the total revenue by 70% to determine the taxable margin.
- Total Revenue Minus Cost of Goods Sold (COGS)
- This method subtracts the cost of goods sold from the total revenue.
- Total Revenue Minus Compensation
- Compensation paid to employees and directors is subtracted from the total revenue.
- Total Revenue Minus $1 Million
- This method involves subtracting $1 million from the total revenue.
The method that results in the lowest margin is typically used for tax calculation.
Computation for Businesses with Total Receipts Between $2,470,000 and $20 Million
Businesses within this revenue range can use the EZ Computation Form, which simplifies the calculation process. However, this form does not allow deductions for the cost of goods sold, compensation, or certain credits. The EZ computation rate is 0.331% of revenue apportioned to Texas.
Tax Rates
The tax rate varies depending on the type of business:
- Retail and wholesale businesses are taxed at 0.375%.
- All other businesses are taxed at 0.75%.
Filing Requirements
The franchise tax report is due annually by May 15. Businesses can file online through the Comptroller’s WebFile system or submit the forms by mail.
Late returns are subject to penalties.
